market volatility

By Bob Barber

Over the past few years, stocks and bonds have seen a tremendous amount of day-to-day and month-to-month volatility. Volatility is the price an investor has to be willing to pay if they want long term growth, but many investors don’t realize, or forget this, when they actually experience volatility in their portfolio. Typically over time, the lower the volatility, the lower the return, and the higher the volatility, the higher the return.

We are now, once again, in a time of extreme volatility. One month your statement shows your account value is up, the next month it shows the value is down. Sometimes, this volatility can go on for several years. In the early 1970’s, the markets did this for 4-5 years before rallying for the next 7-8 years. I have a chart in my office showing all the different markets over 90 years and the many times the markets have gone sideways for 3-4 years in a row. I’m glad I get to look at this chart daily to remind me that what we are experiencing today is normal according to long term history. Those who threw in the towel during a sideways trend have always missed out on a following major rally in the markets for the next 4-5 years or longer.

Control What You Can, Especially Your Emotions

For many, with volatility comes stress. One of the ways to control your emotions during volatile markets is by working with volatility instead of against it! When markets are down, look at it as a buying opportunity just like you do when something goes “on sale” at the local department store. In a sideways market like we have been experiencing for some time now, this is a great opportunity to accumulate as many shares of good companies’ stocks as you can while they are flat or down. Then, when the markets rally someday, you will have bought at lower prices.

This is exactly the strategy Warren Buffett has been using for years, and he is one of the wealthiest men in the world. If you watch him, he always buys stocks during major dips when everyone else is following their emotions and getting out.

* Past performance is no guarantee of future results.

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